Taiwan-based memory manufacturer Power Quotient International Co. Ltd ("PQI") had an established system for selecting, assessing and managing suppliers. A scoring system that assessed suppliers in areas ranging from technical expertise to service quality and responsiveness made it easy for the management to spot suppliers' strengths and weaknesses and to decide whether to keep a supplier at arm's length or to cultivate a strong relationship with the supplier. PQI had just completed its biannual evaluation of suppliers, of which several required further investigation. These suppliers had received only average scores, despite strong performance both technically and commercially. Meanwhile, the management wondered whether sharing its assessment results openly with suppliers might help to improve its relationships with them.

Functional Area :

Accounting & ControlProduction & Operations Management

Learning Objective:

To provide students with a basic understanding of how the management of suppliers can be systematised; to use the transaction cost framework as a tool for selecting and assessing suppliers; and to familiarise management and accounting students with the principles of strategic performance measurement (balanced scorecard) and its application in purchase ordering decisions in the supplier management setting.